Misaligned incentives for improved performance

It’s important to remember that, as a market systems practitioner, not everyone shares your vision of change. Often, the reason markets do not work for the poor is due to the fact that someone in power does not want them to. Examples can include:

Monopoly. This refers to a situation where one provider is able to control prices through what economists call ‘economies of scale’: where they have access to all of the available product or service that others need and therefore have more power to set prices.

Externalities. This refers to situations, such as with regard to climate change or working with marginalized groups, where market incentives do not align with development objectives.

Information asymmetry. This refers to a situation where one party of group of market actors has more information about prices than another and utilises that advantage to their benefit. (See market information).

Creating change in this type of context involves shifting ‘institutional biases’, otherwise known as the rules and patterns that behaviors are based on. These can be ‘relational’, as in referring to how actors relate to each other, or ‘strategic’, referring to how firms and individuals make decisions.